IOSR Journal of Business and Management (IOSR-JBM)

e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 18, Issue 3 .Ver. II (Mar. 2016), PP 01-09
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The Effect of Banks Profitability on Economic Growth in Nigeria

Omotayo Ajibike ADEKOLA
Department of Accountancy, The Polytechnic, Ibadan, Oyo State, Nigeria

Abstract: Profitability and survival of banks is key to economic growth, the health of most industries relies on
the availability of finance provided by the banks within the economy to facilitate transaction. It is on this
premise that this research is carried on to determine how profitability in the banking industry affect economic
growth in Nigeria. The study adopted survey design using ex-post facto. The population of the study is
represented by the Nigerian banking industry, the study covered a period of ten years from 2005 to 2014 based
on the annual report of five selected banks within the Nigerian banking industry. E-views statistical package
was adopted for the regression analysis with the result accepting H 1 and rejecting H0, the study find that
increasing proportion of banks profitability will significantly change the gross domestic product in Nigeria. The
study concluded that profitability of banks has a significant effect on economic growth in Nigeria, this was
confirmed by the prob (F-statistic) showing that there is a negative significant relationship between banks’
profitability and the gross domestic product in Nigeria. The result specifically leads to the conclusion that a
direct relationship existed between banks profitability and the growth of the economy (GDP), based on the
result of our study it is recommended that the regulatory authority should ensure that the gains of the banking
reforms processes are sustained, the CBN should take more decisive measures aimed at tightening the risk
management framework of the Nigerian banking sector as this will have a positive effect on the their
profitability.
Key Words: Profitability, Economic Growth, Development Recapitalization, Human Development index

I. Background Of The Study

There has been a growing concern on banking industry for survival in Nigeria economy in recent times,
despite the fact that the government embarked on several strategies aimed at improving capital base and
capacity utilization of the sector to safeguard depositors money. Furthermore, there are many literatures that
debated on the intermediary role of banks in the economic growth. But, there seem to be a general consensus
that the role of intermediation of banks help in boosting economic growth. Yakubu and Affoi (2014) identified
banks‟ traditional roles to include financing of agriculture, manufacturing and syndicating of credit to
productive sectors of the economy, in which profit is also realized by the banks within the economy.
The banking sector of the economy helps to make fund available by mobilizing surplus funds from
depositor who have no immediate needs of such funds and thus channel such funds in form of credit to investors
who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to
execute the ideas (Nwanyanwu, 2010), thereby creating income for the banks to ensure profitability. It is
instructive to note that the banking sector has stood out in the financial sector as of prime importance, because
in many developing countries of the world, the sector is virtually the only financial means of attracting private
savings on a large scale (Adeniyi, 2006). Profitability in banks remain the main essence of investment to
shareholders as seen in the case of Zenith bank declaring a high profit in 2014 as against all other problems, this
show the importance of profit to stakeholders. Banks‟ performance in Nigeria over the last ten years remained
unimpressive. Profit before tax (PBT) of the banks fluctuated, especially between year 2002 and 2005, and has
declined progressively since 2008. The profit before tax which was 80.8% in 2000 fell dramatically and
recorded a loss of 13.95%. Although PBT peaked at 287.62% in 2007, it groped to 49.14% in 2008 (Obamuyi,
2012). This implies that the opportunities for banks in Nigeria to make profits are gradually reducing. The
declining profits could have been caused by the global economic crises, the festering crises in the banking sector
and the fact that some of the criteria usually employed to measure the performance of the banks have been
compromised by the Central Bank of Nigeria (Obamuyi, 2011). Olokoyo (2011) argues, that the current trend in
Nigerian banking suggests that the days of cheap profits are now over and only banks with well conceptualized
lending and credit administration policies and procedures can survive the emerging competition. The
implication of these is that consistent reduction in profit before tax will erode the sheraholders goal of profit
making as well as the growth and extension plan of the banks (Obamuyi, 2013). This is likely to lead to a further
drop in the share price as shareholders might choose to sell off their investment.Nwanyanwu (2010) argued that
profitability and survival is key to economic growth, the health of most industries relies on the availability of
finance provided by the banks within the economy to facilitate transaction. It is on this premise that this research
is carried on.

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 The Effect of Banks Profitability on Economic Growth in Nigeria

II. Statement of the Problem

The financial sector reform of the Structural Adjustment Programme (SAP) in 1986, which was meant
to correct the structural imbalance in the economy and liberalize the financial systems did not achieve the
expected results. As Edirisuriya (2008) reported, financial sector reforms are expected to promote a more
efficient allocation of resources and ensure that financial intermediation occurs as efficiently as possible. This
also implies that financial sector liberalization brings competition in the financial markets, raises interest rate to
encourage savings, thereby making funds available for investment and increasing profitability in banks, and
hence lead to economic growth (Asamoah, 2008). Therefore, it is logical to assume that financial liberalization
enhances funds mobilization and accessibility, which are required for firms‟ performance and economic growth.
Also with the bank recapitalization in 2004 by Soludo with the fluctuations in the gross domestic product
prompt this study to find the relationship between profitability in banks and economic growth in the Nigerian
economy. Profit in the banking industry fluctuates overtime having its ripple effect on economic growth, this
calls attension to profitability variables (return on capital employed, return on asset, and return on equity) in
banks and their effect on economic growth.

Objectives of the study

The main objective of this study is to evaluate and determine the effect of profitability in the banking
industry on growth in Nigerian economy. Specifically, this research work stands to achieve the following
objectives:
1. To determine the relationship between bank return on capital employed on gross domestic product in
Nigeria.
2. To evaluate the relationship between banks return on equity on gross domestic product in Nigeria.

Research Questions
1. To what extent does bank return on capital employed generate an effect on gross domestic product in Nigeria?
2. What is the relationship between banks return on equity and gross domestic product in Nigeria?

Relevance and Scope of Study

The study will increase awareness on the effect of profitability in banks on gross domestic product,
thereby creating awareness on profit made by the banks and its expectant result on GDP. It will also reveal the
problems of GDP relating to the banks and be useful to researchers, scholars, and other third parties as it shall
open new area of further research work and at same time advance challenges to up-coming researchers. The
study will focus on the effect of profitability in the banks on GDP in Nigeria economy and due to the logical
point that not every bank can be studied as a result of time and resources available, this research is therefore
limited to 10 percent of the population as sample size of the banking sector of the Nigerian economy. This is in
line with (Smith, 2004) The sample representative will be based on selected banks (Zenith bank plc.; UBA plc;
First bank Nig. plc.; and Eco bank Nig.) using a simple random sampling technique representing a minimum of
10 percent of the entire banks in Nigeria within a study period of five years. The study will cover the period
within 2005 to 2014.

III. Review of Literature

The concept of economic growth is viewed as an increase in the net national product in a given period
of time (Dewett, 2005). He explained that economic growth is generally referred to as a quantitative change in
economic variables, normally persisting over successive periods. Todaro and Smith (2006) defined economic
growth as a steady process by which the productive capacity of the economy is increased over time to bring
about rising levels of national output and income. Jhingan (2006) viewed economic growth as an increase in
output. He explained further that it is related to a quantitative sustained increase in the country‟s per capita
income or output accompanied by expansion in its labour force, consumption, capital and volume of trade. The
main characteristics of economic growth are high rate of growth of per capita income or output, high rate of
productivity, high rate of structural transformation, international flows of labour, goods and capital (Ochejele,
2007). Economic growth can also be measured in terms of Gross Domestic Product (GDP) and Human
Development Index (HDI), which is an index that measures national growth based on measures of life
expectancy at birth, education attainment, literacy and adjusted real per capita income. Looking at the above
definition we can conclude that economic growth is went there is a sustained increase in the actual output of
goods and services per head. Below are the ranking of Nigeria banks based on some yardstick.

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 The Effect of Banks Profitability on Economic Growth in Nigeria

Table 1.1: Summary of Ranking of Nigerian Banks by previous works

S/N Shareholders fund No of branches Share value S t r o n g Satisfactory S h a k e n Stressed
(2008) (2008) (2008)
(2009) (2009) (2009) (2009)
1 F i r s t U B A U B A Diamond Afribank Access Finbank
2 Oceanic F i r s t Zenith F i r s t C i t i E c o S p r i n g
3 Intercont Union First GTB ETB FCMB U n i t y
4 U B A Oceanic Un i on S k y e F i d e l i t y Intercont W e m a
5 G T B Z e n i t h Intercont P H B Oceanic
6 Z e n i t h Intercont Oceanic S t a n b i c Sterling

7 Standard/ U n i o n
Chartered
Source: Compilation by the researcher.

Table 1.2: Summary of Ranking of Nigerian Banks by previous works (Continued).

Total Assets P A T E P S R O E M A R K E T
(2010) (2011) (2011) (2011) CAPITALIZATION
(2011)
Zenith G T B G T B First Z e n i t h
First Zenith Zenith UBA F i r s t
I n t e r c o n t U B A U B A Union, Oceanic, G T B
GTB & Intercont
UBA Fidelity Fidelity U B A
Union First First A c c e s s
O c e a n i c
Source: Compilation by the researcher.

IV. Theoretical Review

1. Endogenous Growth Theory
Endogenous Growth Theory or new growth theory was developed in the 1980‟s by Romer, Lucas and
Rebelo, among other economists as a response to criticism of the neo-classical growth model. The endogenous
growth theory holds that policy measures can have an impact on the long-run growth rate of an economy
(Yakubu and Affoi, 2014). The growth model is one in which the long-run growth rate is determined by
variables within the model, not an exogenous rate of technological progress as in a neo-classical growth model.
Jhingan (2006) explained that the endogenous growth model emphasizes technical progress resulting from the
rate of investment, the size of the capital stock of human capital. In an endogenous growth model, Nnanna et al.
(2004) observed that financial development can affect growth in three ways, which are: raising the efficiency of
financial intermediation, increasing the social marginal productivity of capital and influencing the private
savings rate. This means that a financial institution can effect economic growth by efficiently carrying out its
functions, among which is the provision of financial services which leads to bank profitability.

2. Empirical Review
Levine (1997) proposed that financial development promotes economic growth through two “channels”
of capital accumulation and technological innovation, while King and Levine (1993b) identified innovation as
the main channel of transmission between finance and growth.
Dey & Flaherty (2005) used a two-stage regression model to examine the impact of bank credit and stock
market liquidity on GDP growth. They found that bank credit and stock market liquidity are not consistent
determinants of GDP growth. Banking development is a significant determinant of GDP growth, while turnover
is not. Cappiello, Kadareja, Sørensen, and Protopapa (2010) in their study of European Area found that in
contrast to recent findings for the US, the supply of credit, both in terms of volumes and in terms of credit
standards applied on loans to enterprises, have significant effects on real economic activity. In other words, a
change in loan growth has a positive and statistically significant effect on GDP.
In a study carried on by Muhsin and Eric (2000) on Turkish economy, it was found that when bank
deposit, private sector credit or domestic credit ratios are alternatively used as proxies for financial
development; causality runs from economic growth to financial development. Their conclusion was that growth
seems to lead financial sector development. Mishra et al (2009) examined the direction of causality that runs
between credit market development and the economic growth in India for the period 1980 to 2008. In the VAR
framework the application of Granger Causality Test provided the evidence in support of the fact that credit
market development spurs economic growth. The empirical investigation indicated a positive effect of economic
growth on credit market development of the country. Mukhopadhyay and Pradhan (2010) recently examined the
causal relationship between financial development and economic growth of 7 Asian developing countries
(Thailand, Indonesia,Malaysia, the Philippines, China, India and Singapore) during the last 30 years, using
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 The Effect of Banks Profitability on Economic Growth in Nigeria

multivariate VAR model. The study concluded that no general consensus can be made about the finance-growth
relationship in the context of developing countries.Odedokun (1989), for instance, tested the causality between
financial variables and economic development. Among other findings, he found a rather weak unidirectional
causation from the GDP to the broader money when Sim‟s procedures were used and contrary estimates for
Granger causality. Olomola (1995) applied co-integration and Granger causality to Nigerian quarterly series
data for 1962-1992 in order to test if the relationship between financial deepening-grow this either “demand
following” or “supply leading”. Among other results, his study showed that the Nigerian economy exhibits a
mixture of „supply-leading‟ and demand-following patterns whereby causation runs from the financial sector of
the economy to the real sector and vice-versa. His study also supports the case of unidirectional causality from
the real sector to the financial sector as in Odedokun (1989). His conclusion among others was that money is
causally prior to income, in the sense of Granger, for Nigeria, and that the reverse causation holds.
Generally, the above review of related studies supposes that the causal relation between credit market
development and economic growth is still debatable in the literature. Apart from being scanty, the empirical
literature is weakened by not covering the period of recent global financial crisis in the Nigerian economy. This
paper is an attempt to fill such gaps in the finance-growth nexus literature.Gull, Irshad, and Zaman (2011)
examined the relationship between bank-specific and macro-economic characteristics over bank profitability by
using data of top fifteen Pakistani commercial banks over the period 2005 to 2009. The paper used the pooled
ordinary least square (POLS) method to investigate the impact of assets, loans, equity, deposits, economic
growth, inflation and market capitalization on major profitability indicators that is, return on asset (ROA), return
on equity (ROE), return on capital employed (ROCE) and net interest margin (NIM) separately. The empirical
results showed strong evidence that both internal and external factors have a strong influence on the
profitability.
Seven years earlier, Goddard et al. (2004) had investigated the profitability of European banks during
the 1990s using cross-sectional, pooled cross-sectional time series and dynamic panel models. Models for the
determinants of profitability incorporate size, diversification, risk and ownership type, as well as dynamic
effects. They found that despite intensifying competition there was significant persistence of abnormal profit
from year to year. Their results suggests that evidence for any consistent or systematic size–profitability
relationship is relatively weak; the relationship between the importance of off-balance-sheet business in a bank‟s
portfolio and profitability is positive for the UK, but either neutral or negative elsewhere. Furthermore the
relationship between the capital–assets ratio and profitability was positive.
In a study on the determinants of the Tunisian banking industry profitability for 10 banks in Tunisia for
the period 1980 to 2000, Naceur (2003) observed that high net interest margin and profitability are likely to be
associated with banks with high amount of capital and large overheads. Further the paper also noted that other
determinants such as loans has positive and bank size has negative impact on profitability. Naceur and Goaied
(2001) investigated the impact of banks‟ characteristics, financial structure and macroeconomic indicators on
banks‟ net interest margins and profitability in the Tunisian banking industry from 1980 to 2000. Individual
bank characteristics explain a substantial part of the within-country variation in bank interest margins and net
profitability. High net interest margin and profitability tend to be associated with banks that hold a relatively
high amount of capital, and with large overheads. Size is found to impact negatively on profitability which
implies that Tunisian banks are operating above their optimum level.Ani, Ugwunta, Ezeudu, and Ugwuanyi,
(2012) carried on a survey, an empirical assessment of the determinants of bank profitability in Nigeria: Bank
characteristics panel evidence, using pooled OLS. The major outcome of this study is that higher total assets
may not necessarily lead to higher profits. The negative coefficient of size indicates that this relation might be
negative due to diseconomies of scale suffered by banks due to uncontrollable increased size. Higher loans and
advances contribute towards profitability. This reveals that more dependence on one major asset, may lead to
profitability but with less significant impact on overall profitability. They recommend that Banks in Nigeria
should endeavor to manage adequately the liquidity and profitability trade-off while diversifying their asset in a
way to remain profitable and sustainable.
Sabo (2007) carried on a study on Assessment of the Determinants of the Nigerian Banking Industry
Profitability Using Panel Evidence from Nigerian Commercial Banks, which focused on the determinants of
bank's interest margin and profitability focusing on whether banks in a particular country or panel have tended
to exhibit different profit determinants and deposit behaviours. Using the panel of respondents drawn randomly
from 10 sampled banks based on their total deposit position at the entry point of the period of study 1996-2005,
the study established that in Nigeria, the volume of operations more than any other factor determined the
operating profits of commercial banks. The other factors include the level of market capitalisation, peer group
ranking and combination of other important factors as determined by the tempo of the macro-economic
environment. This finding posed serious challenge to bank executives to identify important explanatory
variables or determinants affecting their annual earnings to their forecast and build them into their chosen
forecasting and profit planning models to improve forecast accuracy. The study calls for more commitment to

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 The Effect of Banks Profitability on Economic Growth in Nigeria

trainings and model development based on the internal peculiarities of banks under study.

Research Hypotheses
H0 Return on capital employed in banks has no significant effect on GDP.
H0 Return on asset in banks has no significant effect on the GDP

V. Methodology
Research design
According to Odugbemi and Oyesika (2000), research design is the structuring of investigation aimed
at identifying variables and their relationship to one another. Asika (2005), postulate that research design is a
scientific plan, drawing or scheme indicating the functioning or workings of the research process before it is
engaged in. This research is a survey research using ex-post factor research design. Secondary data will be used
to obtain the required information.

Population of the Study

The research target all quoted banks in Nigeria as population of this study. This research is aimed at
determining the effect of profitability in banks on GDP in Nigeria economy, and it is based on financial
statement of the five selected quoted banks based on profitability level over the last ten years, (Zenith bank plc.;
UBA plc; First bank Nig. plc.; Diamond bank plc.; and GTB bank Nig.).

Sample Representative
The population for the study, is represented by the all banks in Nigeria from which selection is based
on their profitability using simple random selection method is used in determining the study sample, (Zenith
bank plc.; UBA plc; First bank Nig. plc.; and Eco bank Nig.) representing 10 percent of the entire population,
this in line with Smith (2004) who argued that ten percent of the population is sufficient generalize on the
population.

Sampling techniques
The technique adopted in this study is the simple random sampling method. It involves the random
selection of sample from the entire population using the ballot system or based on a specified yardstick and
administration of the research instruments on the selected samples.

Model specification
The regression analysis that will be adopted for the study with a pooled OLS (POLS) equation
estimated/expressed mathematically as: y= a+ bx+ µ
Where; y= Dependent variables (GDP)
a= Intercept or Autonomous Variable.
b= co-efficient of the independent variable or the slope
x = Independent Variable (Banks profitability)
µ= Stochastic variable. (This represents other variables that can cause changes in the dependent variables, which
are not represented in the stated model).
Model
Y = F (X)
GDP=f(ROCE)
GDP=f(ROE)
The econometric model of this functional relationship is given as:
GDP = α+β x+ β y +μ ………….(1)
Where:
GDP = Gross domestic product
X= Return on capital employed
Y= Return on equity
α = Autonomous GDP when Commercial bank ROCE, and ROE is held constant
β= Coefficient of commercial bank ROCE, and ROE
μ = Error term

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 The Effect of Banks Profitability on Economic Growth in Nigeria

VI. Empirical Test

Data in this study is analyzed using E-views statistical tool for regressing the variables. That is, GDP on ROCE
and ROE.
Model One
Dependent Variable: GDP
M e t h o d : P a n e l L e a s t S q u a r e s
D a t e : 0 5 / 0 1 / 1 5 T i m e : 0 5 : 3 1
S a m p l e : 2 0 0 5 2 0 1 4
P e r i o d s i n c l u d e d : 1 0
C r o s s - s e c t i o n s i n c l u d e d : 1 0
T o t a l p a n e l ( b a l a n c e d ) o b s e r v a t i o n s : 1 0 0

V a r i a b l e Coefficient Std. Error t-Statistic P r o b .

C 7.459196 8.25E-17 9.04E+16 0 . 0 0 0 0

R O C E -9.46E-16 1.04E-16 -9.064337 0 . 0 0 0 0

Effects Specification

C r o s s - s e c t i o n f i x e d ( d u m m y v a r i a b l e s )

R - s q u a r e d 1.000000 Mean dependent var 7 . 4 5 9 1 9 6

Adjusted R-squared 1.000000 S.D. dependent var 0 . 1 7 1 1 1 8
S.E. of regression 8.09E-16 Akaike info criterion - 6 6 . 5 6 0 5 6
Sum squared resid 5.82E-29 Schwarz criterion - 6 6 . 2 7 3 9 9
L o g l i k e l i h o o d 3339.028 Hannan-Quinn criter. - 6 6 . 4 4 4 5 8
F - s t a t i s t i c 4.43E+29 Durbin-Watson stat 2 . 4 4 1 7 8 3
Prob(F-statistic) 0.000000

Interpretation
The coefficient of the independent is -9.46 which is negative. This shows that there is a negative
relationship between the independent variable and dependent variable which is highly negatively significant.
This implies that banks return on capital employed has a negative significant effect on the economic growth in
Nigeria.The overall coefficient of determination R2, which is the explanatory power of the model, is 1.000, that
is R2 = 1.000 this implies that 100% of the variations in economic growth is explained by the independent
variable. The remaining 0% of changes is explained by other variables that are not considered in the model but
can cause variation on the dependent variable which is represented in the model as stochastic error term.
The F test at 95 percent level of significance shows that probability (F stat) calculated of 1.00 is more than the
error term of 5 percent, in this wise, we reject the H 1 and accept H0. This means that the significant level of 1.00
on the statistical table explains the improvement in the economic growth in Nigeria. Therefore, accept H 0 (banks
profitability has no significant effect on economic growth in Nigeria).

Model Two
GDP=f (ROE)
D e p e n d e n t V a r i a b l e : G D P
M e t h o d : P a n e l L e a s t S q u a r e s
D a t e : 0 5 / 0 1 / 1 5 T i m e : 0 5 : 3 2
S a m p l e : 2 0 0 5 2 0 1 4
P e r i o d s i n c l u d e d : 1 0
C r o s s - s e c t i o n s i n c l u d e d : 1 0
T o t a l p a n e l ( b a l a n c e d ) o b s e r v a t i o n s : 1 0 0

V a r i a b l e Coefficient Std. Error t-Statistic P r o b .

C 7.459196 2.54E-16 2.93E+16 0 . 0 0 0 0

R O E -6.09E-15 6.70E-16 -9.084131 0 . 0 0 0 0

Effects Specification

C r o s s - s e c t i o n f i x e d ( d u m m y v a r i a b l e s )

R - s q u a r e d 1.000000 Mean dependent var 7 . 4 5 9 1 9 6

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 The Effect of Banks Profitability on Economic Growth in Nigeria
Adjusted R-squared 1.000000 S.D. dependent var 0 . 1 7 1 1 1 8
S.E. of regression 2.05E-15 Akaike info criterion - 6 4 . 7 0 3 1 1
Sum squared resid 3.73E-28 Schwarz criterion - 6 4 . 4 1 6 5 4
L o g l i k e l i h o o d 3246.155 Hannan-Quinn criter. - 6 4 . 5 8 7 1 3
F - s t a t i s t i c 6.92E+28 Durbin-Watson stat 1 . 0 3 4 0 4 7
Prob(F-statistic) 0.000000

The coefficient of the independent is -6.09 which is negative. This shows that there is a negative
relationship between the independent variable and dependent variable which is highly negatively significant.
This implies that return on equity has a negative significant effect on the economic growth in Nigeria.
The overall coefficient of determination R2, which is the explanatory power of the model, is 1.000, that is R 2 =
1.000 this implies that 100% of the variations in economic growth is explained by the independent variable. The
remaining 0% of changes is explained by other variables that are not considered in the model but can cause
variation on the dependent variable which is represented in the model as stochastic error term. Since the Prob
(F-statistic) is 0.00, which is below the error term of 0.05. This implies that the alternative hypothesis explains
the hypothesis.The F test at 95 percent level of significance shows that probability (F stat) calculated of 0.00 is
less than the error term of 5 percent, in this wise, we reject the H 0 and accept H1. This means that the significant
level of 1.00 on the statistical table explains the improvement in the economic growth in Nigeria. Therefore,
accept H1 (return on equity has a significant effect on economic growth in Nigeria).

VII. Summary of Findings

1. The overall R-squared of hypothesis one and two showed that about 100% variation in gross domestic
product in Nigeria can be attributed to profitability of banks. The F-statistic p-value showed 0.00%. This
shows that the panel regression result is statistically significant at the 5% level.
2. The coefficients showed that one unit change in bank profitability will cause a negative unit change in
gross domestic product. This negative effect is statistically significant for the period covered in this study.
3. The overall R-squared showed that about 100% change in gross domestic product can be attributed to
banks‟ profitability.
4. The study also revealed that increasing proportion of banks profitability will significantly change the
gross domestic product in Nigeria.

VIII. Conclusion
The study was carried on to determine the effect of banks‟ profitability on the gross domestic product
of Nigeria, the findings posit that any change in banks‟ profitability represented by return on capital employed
and return on equity will significantly cause a change in the economic growth which is represented by gross
domestic product . This was confirmed by the prob(F-statistic) showing that there is a negative significant
relationship between banks‟ profitability and the gross domestic in Nigeria. The result specifically leads to the
conclusion that a direct relationship existed between interest rate and the growth of the economy (GDP),
meaning that increase in interest rate will certainly increase savers

IX. Recommendations
1. Government policies should be channel towards increasing profitability of money deposit banks‟ in other to
increase aggregate output through increase in interest rate as this enhances economic growth.
2. A strong monetary policy for Nigeria should not be based on interest rate regulation, except our financial
sector is improved and the awareness of the activities of the financial institutions taken to ordinary
Nigerians.
3. The regulatory authority should ensure that the gains of the banking reforms processes are sustained, the
CBN should take more decisive measures aimed at tightening the risk management framework of the
Nigerian banking sector as this will have a positive effect on the their profitability. Based on the area and
findings of the study, money deposit banks‟ profitability has a significant effect on economic growth in
Nigeria. However, economic growth also has its effect on banks‟ profitability, which other researchers can
embark upon to find out the relationship if any that exist between economic growth and banks profitability.

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